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					</table>Madhya Pradesh&#8217;s new levy on solar developers selling power to entities other than the state distribution companies (DISCOMs) has confirmed the industry&#8217;s fear that more states are formulating laws to squeeze solar projects through state-specific levies.
The state has announced a Harit Urja Vikas (green energy development) fee of ₹0.10 (~$0.0012)/kWh on electricity sold to non-DISCOM consumers. The fee will apply to all renewable energy projects with consumers outside Madhya Pradesh. Additionally, in the case of open access projects (captive/third-party), the levy will apply to the entire electricity generated by projects.
Madhya Pradesh&#8217;s levy goes a step further in scope than Rajasthan, which imposes a cess between ₹200,000 (~$2,417) and ₹500,000 (~$6,039) per MW annually on developers for supplying power to utilities other than DISCOMs in Rajasthan.
While the Rajasthan levy is effective on DISCOMs of other states, the green energy levy in Madhya Pradesh will also be borne by commercial and industrial (C&amp;I) units located within the state and procuring solar power through open access.
<img loading="lazy" decoding="async" class="aligncenter wp-image-43888" src="https://mercomindia.com/wp-content/uploads/2022/11/State-Specific-Charges-on-Solar-Projects-Chart-1.png" alt="State Specific Charges on Solar Projects Chart" width="600" height="283" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/11/State-Specific-Charges-on-Solar-Projects-Chart-1.png 927w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/11/State-Specific-Charges-on-Solar-Projects-Chart-1-300x142.png 300w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/11/State-Specific-Charges-on-Solar-Projects-Chart-1-768x363.png 768w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/11/State-Specific-Charges-on-Solar-Projects-Chart-1-650x307.png 650w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/11/State-Specific-Charges-on-Solar-Projects-Chart-1-624x295.png 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/11/State-Specific-Charges-on-Solar-Projects-Chart-1-600x283.png 600w" sizes="(max-width: 600px) 100vw, 600px" />A developer said other states would also start looking at solar projects as an easy and attractive source of revenue. &#8220;The Madhya Pradesh fee is akin to the state shooting itself in the foot as its domestic C&amp;I base will suffer due to more expensive solar power.&#8221;
Another developer specializing in solar open-access projects said that the ₹0.10 (~$0.0012)/kWh levy will not make projects unviable but will surely eat into the profits. &#8220;Also, the question is not about how it will affect captive or third-party projects but about the fairness of imposing such fees. This goes against the growth and development of the renewables sector,&#8221; he said.
Over the past few years, C&amp;I consumers across the country have moved towards renewable energy open access, especially solar, as it has provided meaningful savings in energy costs. According to Mercom India Research&#8217;s <a href="https://mercomindia.com/product/india-solar-open-access-market-report-q2-2022/" target="_blank" rel="noopener">Mercom India Solar Open Access Market Report Q2 2022</a>, Madhya Pradesh has an installed open access solar capacity of 399 MW.
By going green, C&amp;I units have gained more credibility and attracted fresh business while being able to <a href="https://mercomindia.com/chennais-ci-sector-adopt-solar-meet-energy-demand/" target="_blank" rel="noopener">secure</a> loans at reasonable rates. The additional fee in Madhya Pradesh has narrowed savings from renewable options.
Before the Madhya Pradesh government approved the Harit Urja fees, the Rajasthan Electricity Regulatory Commission had proposed that the state government enact a law mandating that inter-state solar projects <a href="https://mercomindia.com/rajasthan-proposes-free-solar-power-state-discoms-interstate-projects/" target="_blank" rel="noopener">provide </a>10% of the capacity to the state DISCOMs free of cost. Developers had sounded the alarm bells then, saying that other states would replicate it.
&#8220;If you look at the recent ISTS auction of SECI or any other organization, you will see a margin of one paisa sometimes determines the winners. The competition is aggressive, and such a fee is unfair,&#8221; said a senior executive of a solar project developer.
Another developer added that the fee would bring an additional burden on top of state transmission utility charges, cross subsidy surcharge, additional surcharge, and wheeling charges, among others.
<img loading="lazy" decoding="async" class="aligncenter wp-image-43885" src="https://mercomindia.com/wp-content/uploads/2022/11/MP-Open-Access-Charges-Chart.png" alt="MP Open Access Charges Chart" width="600" height="271" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/11/MP-Open-Access-Charges-Chart.png 736w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/11/MP-Open-Access-Charges-Chart-300x136.png 300w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/11/MP-Open-Access-Charges-Chart-650x294.png 650w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/11/MP-Open-Access-Charges-Chart-624x282.png 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/11/MP-Open-Access-Charges-Chart-600x271.png 600w" sizes="(max-width: 600px) 100vw, 600px" />
&#8220;These are the charges we know we must pay and are completely willing to do so. However, if states decide to come up with random fees, this will set a bad precedent and impede the growth of renewables,&#8221; he added.
The suite of fees imposed by DISCOMs is adding pressure on developers by cutting into their profits and potentially increasing the cost of projects. States must ensure that the growth of renewables is not impeded if they aim to contribute meaningfully to India&#8217;s renewable installation goals.
The levies by individual states pose a genuine threat to the renewable ecosystem, but the central government has constitutional limitations in negating such moves. India’s federal structure allows the state governments complete or partial autonomy to make laws in many areas. Legally, the power sector comes under the ‘concurrent list,’ which means that both Center and states can legislate on it.
In the event of a dispute, the Center’s law is supposed to prevail in the Supreme Court. The Central government has traditionally avoided getting into such constitutional battles unless totally unavoidable.

Developers Fear Unfair State-Specific Levies will Make Solar More Expensive

According to a communique reviewed by Mercom, the Indian Prime Minister Narendra Modi’s office has proposed waiving the Goods and Services Tax (GST) Compensation Cess, (earlier called the Clean Energy Cess which was India’s version of carbon tax) on coal to reduce the financial strain on distribution companies, besides helping the thermal power projects install flue gas desulphurization to curb pollution.
This proposal comes in light of the mandate to implement flue gas desulphurization (FGD) at thermal power projects in the country. The resulting investment in the FGD process is expected to result in increased power prices for customers.
FGD is the process of removing sulfur dioxide from exhaust flue gases of fossil-fuel power plants, and sulfur oxide emissions from processes like the incineration of waste material.
Earlier this year, the Ministry of Power (MoP) <a href="https://mercomindia.com/700-million-plan-for-ev-infrastructure-revamp/" target="_blank" rel="noopener noreferrer">proposed</a> a ₹835 billion ($11.70 billion) plan to meet the cost of development of Flue Gas Desulfurization to improve air quality and to conform to new norms notified by the Ministry of Environment Forest and Climate Change (MoEF &amp; CC) for power plants.
Projects which have the FGD facility at their sites would have to sell power at a higher cost after factoring in implementation costs. The communique stated that even with financing, the power tariff would increase by ₹0.30 – 0.35 (~$0.004 – 0.005)/kWh and would further burden DISCOMs that already <a href="https://mercomindia.com/discom-dues-to-power-generators-october-up-yoy/">owe</a> power developers over ₹844 billion (~$11.83 billion) in outstanding dues.
The National Clean Energy Fund (NCEF) was created in 2010 to fund the cost of research and innovative projects using clean energy technologies by public and private sector entities. The fund has evolved under the NDA administration and was rebranded as the Clean Environment Cess, from the earlier Clean Energy Cess, to include river cleaning and other projects. The Cess, which was ₹50 (~$0.74)/ton when it was introduced in 2010, was raised to ₹100 (~$1.5)/ton in 2014 and to ₹200 (~$3)/ton in the 2015-2016 budget. It was again doubled from ₹200 (~$3)/ton to ₹400 (~$6)/ton in the 2016-17 budget.
From 2010 to 2017, about ₹864 billion (~$13.3 billion) <a href="https://mercomindia.com/mnre-receive-rs-53-41-billion-817-million-national-clean-energy-fund-fy2017-2018/" target="_blank" rel="noopener noreferrer">has been collected</a> through the Clean Environment Cess, out of which only ₹296 billion (~$4.6 billion) was transferred to NCEF. Ministry of New and Renewable Energy (MNRE) had only received about ₹171 million (~$2.6 million) to that point.
The Government of India then enacted a bill to utilize the Clean Environment Cess (India’s version of carbon tax) collected on coal, to finance the Goods and Services Tax (GST) Compensation Fund, a non-lapsable fund that will form part of the public account of India.
The Goods and Services Tax (Compensation to States) Act, 2017 which came into force in April 2017, states that coal cess, along with other cess on pan masala, tobacco, aerated water etc., would constitute GST Compensation Fund and would be utilized to fund the States for five years to compensate them for potential losses on account of GST implementation. After five years, any amount left was to be shared on a 50 percent basis between the Center and States.
The PMO explained that by waiving the ₹400 (~$5.61)/ton cess, the increase in tariff would not be transferred to customers. Consequently, the requirement of subsidies from the government would also not increase, and this would make up for losses to the GST compensation cess.
This move, while positive for the Indian coal industry would, however, would make coal power slightly more competitive with solar and wind energy.
The total power capacity <a href="https://mercomindia.com/solar-accounts-india-total-installed-power-capacity/" target="_blank" rel="noopener noreferrer">installed</a> in India stood at 366 GW at the end of September 2019, with coal accounting for 53.8% and renewable energy capacity (including large hydro), making up 35.7% of the total installed power capacity in the country.
“The amount of clean energy cess fund going towards renewable energy and MNRE was only about 20% in 2017. The funds were already being diverted to river cleaning, water and sanitation, and other areas. The impact of this proposal on renewable energy development is likely to be minimal,” said Raj Prabhu, CEO of Mercom Capital Group.
Image credit: Shivang Dubey [CC BY-SA <a href="https://creativecommons.org/licenses/by-sa/4.0" target="_blank" rel="noopener noreferrer">4.0</a>]

Prime Minister’s Office Proposes Waiving Carbon Tax on Coal

The Ministry of New and Renewable Energy (<a href="http://mnre.gov.in/" target="_blank" rel="noopener">MNRE</a>) recently issued a <a href="https://mnre.gov.in/sites/default/files/webform/notices/Clarification-Guidelines-for-TBCB-process-for-procurement-of-power-from-GCSPV-projects.pdf" target="_blank" rel="noopener">clarification</a> on the August 2017 guidelines for the tariff-based competitive bidding process for  grid-connected solar photovoltaic (PV) projects.
However, the clarifications &#8211; which were introduced by the MNRE to support the domestic solar industry &#8211; have still not managed to alleviate any stakeholder concerns due to confusion around the processes that project developers must follow in order to avoid duties on solar imports.
According to an MNRE official, the ministry has now clarified Clause 20 of the guidelines, which deals with changes in law of tax rates, and has a direct effect on the economics of any solar project.
To remove the ongoing uncertainty, the government clarified that the term “change in the rates of any taxes” as mentioned in Clause 5.7.2 of the guidelines includes “change in rates of taxes, duties and cess.”
The addition of duties and cess in the clause implies that when a duty or cess is changed, the solar power generator or procurer will be entitled to compensation by the other party, as <a href="https://mercomindia.com/mnre-change-in-law-compensation-solar/">reported</a> previously by Mercom.
The Clarification
“This is a mere elaboration of the clause and not an amendment,” the official specified. “The changes in the guidelines will apply and hence will not have any drastic effect on the tenders that have been already issued.”
Had it been an amendment, it would have had to be approved in parliament. The official further said that since this is a clarification, it will be retrospective and will not need the cabinet approval.
The change in law, however, does not include any change in taxes on corporate income or any change on withholding taxes on income or dividends.
The change in the guidelines comes on the heels of Madras High Court’s <a href="https://mercomindia.com/madras-high-court-dismisses-petition-levy-safeguard/">dismissal</a> of the petition filed by project developer, Shapoorji Pallonji, against the levy of a 70 percent safeguard duty on solar imports. This dismissal has paved the way for the probable imposition of a safeguard duty on solar modules and cells imported from China, Malaysia, and Taiwan, after the Office of Directorate General of Safeguards concludes its investigation (which was stalled  in the courts).
As the eventual fate of safeguard duty draws closer, the domestic solar industry is still reeling under ambiguity, and seeks a better understanding of the compensation mechanism put in place by the government.

Update: MNRE Clarifications on Change in Law for Solar Projects

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